Property-catastrophe reinsurance rate increases were steady at the July 1, 2009 renewal. In the United States and Latin America, capacity was sufficient to meet demand. U.S. property-catastrophe reinsurance rates increased 15 percent year-over-year, in line with the trend from January to June. In Latin America, preliminary data varied by country, but upward pressure on pricing was offset by supply and local market competition to keep reinsurance rate increases contained. For the marine sector, rates were up 5 percent to 10 percent, based mostly on loss history and catastrophe exposure. With four major renewal periods covered this year, a sense of calm has emerged. The general reinsurance market is tepid, with a few hotspots based on region- or program-specific factors.

United States

Upward pressures on U.S. property-catastrophe reinsurance rates were steady at the July 1, 2009 renewal, as capacity in the market was sufficient without being abundant. This continues a trend seen in the United States from January through June. Consistent with the year’s prior renewals, U.S. national program rates were up 15 percent year-over-year, with pricing in the Northeast up 8 percent. This represents a slight up-tick from April 1, 2009’s average rate increase of 14 percent, part of which is driven by a smaller sample size (which gives some loss-affected programs greater influence over the results). Northeast program rates are unchanged from April 1, 2009.

For higher layers, firm order terms (FOTs) grew only 11 percent to 14 percent relative to July 1, 2008 FOTs, with slightly larger increases — 14 percent to 16 percent — realized at lower layers. Average quotes ranged from -25 percent to 15 percent, based on program-specific factors, such as the particular regions and perils covered. This is a significantly wider quoting range than the June 1, 2009 renewal, where the vast majority of the business is comprised of a Florida exposure base. FOTs were 89 percent of the maximum quote and 117 percent of the minimum. Even with the considerable gap between maximum and minimum quotes, FOTs came in at 96 percent of the average quote.

For programs in the Northeast, FOTs for both higher and lower layers were up between 5 percent and 10 percent year-over-year. FOTs were equal to the minimum quote, 92 percent of average and only 79 percent of the highest quote, as some reinsurers attempted to price business more aggressively than cedents would support.

Signs of stabilization in global financial markets contributed to the steadying of the rate of increase of reinsurance rates at the July 1, 2009 renewal, as the underlying capital situation has not deteriorated at the pace witnessed in 2008. Though efforts to replenish balance sheets have been slow, the (re)insurance industry has not had to contend with the continued loss of capital. As a result, the market remains manageable, with adequate supply to meet demand. Price increases have remained in the 10 percent to 15 percent channel, since there has been no impetus for spiking (with the exception of certain program loss histories or exposures).

Latin America

Reinsurance rates for carriers in Latin American generally showed modest increases in the quoting stage. A long renewal season has delayed the availability of some FOTs. Rates tended to move in accordance with the global 2009 trend, as upward pressure from model updates and exposure variances offset the availability of capacity, reinsurance broker competitive forces, and a competitive underlying primary market, which kept prices from spiking.

Pricing

Mexico, the region’s largest market, sustained price increases (based on our analysis to date) of 2.5 percent to 10 percent, on average, for earthquake and windstorm catastrophe excess of loss (XOL) programs, with some prices at the high end influenced by the capacity available. Central American earthquake and windstorm pricing was in roughly the same range - flat to 12 percent. Reinsurance renewal terms in the Caribbean (and some multi-territory programs) did stretch higher.

Price increases for risk XOL programs were more modest. Early indicators put programs in Mexico and Central America up 2.5 percent to 5 percent, on average.

Drivers

Reinsurance rate increases resulted largely from model changes, exposure variances and in pockets the availability of capacity. However, a competitive primary market, competition among reinsurance brokers and the fact that capacity was broadly unchanged from July 1, 2008 prevented a widespread price hike. As with the earlier 2009 renewals — and the global trend at July 1, 2009 — a careful balance between supply and demand led reinsurance rates to follow expectations in Latin America.

Understandably, several factors put upward pressure on reinsurance rates. Exposure variances resulted in some increases, along with pockets of capital constraint. Further, new models from some of the third-party firms — as well as changes to internal underwriting models — caused reinsurers to push pricing a bit higher. As in the United States, underwriting became more technical, as reinsurers focused more on exposure than loss history.

Yet, there was no spike — as with the January, April, and June renewals elsewhere in the world.

A competitive primary market in Latin America was among the reasons. Additionally, increased competition among reinsurance brokers resulted in reinsurance rate containment. Capacity remained steady year-over-year, which also applied some downward pressure on pricing.

Marine

The July 1, 2009 marine reinsurance renewal is secondary to that of January 1, 2009, and it stayed consistent with its predecessor. In general, rates increased by 5 percent to 10 percent for XOL programs, based on loss history and catastrophe exposure. Capacity has remained adequate, despite the loss of capital sustained from late 2008 through the first two quarters of 2009.

For offshore energy programs, though, capacity has become quite limited, particularly for Gulf of Mexico windstorm — whether XOL or proportional. Pricing and attachment levels are increasing, and terms and conditions are tightening. Many original insureds are choosing to self-insure Gulf of Mexico assets, causing aggregate risk limits to fall dramatically. Further, cedents in the United States with excess liability exposures have faced greater scrutiny by reinsurers as a result of major market losses sustained in 2008.

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